Marriot Corporation-Cost of Capital
Marriot Corporation: Cost of Capital
By Xue Fan
Background
Marriott Corporation began in 1927 with J. Willard Marriott’s root beer stand. Over the next 60 years, the business grew into one of the leading companies in industry in United States. In 1987, Marriott’s sales grew by 24% and its return on equity stood at 22%. Sales and earnings per share had doubled over the previous 4 years, and the company strategy was aimed at continuing this trend.
Marriot Corporation had three major lines of business, which are lodging, contract services, and restaurants. Lodging operation included 361 hotels with more than 100,000 rooms in total. Hotels ranged from the full-service, high-quality Marriott hotels and suites to the moderately priced Fairfield Inn. Contract services provided food and services management to health-care and educational institutions and corporations. It also provided airline catering and airline services through its Marriot In-Flite Services and Host International operations. Restaurants division included Bob’s Big Boy, Roy Rogers, and Hot Shoppes. In term of revenue, contract services was the biggest division which generated 46% of 1987 sales, and lodging division came after with 41% sales, restaurants division at last with 13% sales.
In April 1988, Dan Cohrs, the vice president of project finance at Marriott Corporation, was preparing his annual recommendations for the discount rates at each of the firm’s three divisions. Since the risk profile were different for each division, Cohrs projected three different discount rates, which were 10% for lodging division, 15% for restaurant division, and 16% for contract services division.
Company’s goal
As mentioned in Marriott’s 1987 annual report, the company intended to remain its premier growth. This means aggressively developing appropriate opportunities within its three lines of business. And in each of these areas, Marriott’s goal was to be the preferred employer, the preferred provider, and
By Xue Fan
Background
Marriott Corporation began in 1927 with J. Willard Marriott’s root beer stand. Over the next 60 years, the business grew into one of the leading companies in industry in United States. In 1987, Marriott’s sales grew by 24% and its return on equity stood at 22%. Sales and earnings per share had doubled over the previous 4 years, and the company strategy was aimed at continuing this trend.
Marriot Corporation had three major lines of business, which are lodging, contract services, and restaurants. Lodging operation included 361 hotels with more than 100,000 rooms in total. Hotels ranged from the full-service, high-quality Marriott hotels and suites to the moderately priced Fairfield Inn. Contract services provided food and services management to health-care and educational institutions and corporations. It also provided airline catering and airline services through its Marriot In-Flite Services and Host International operations. Restaurants division included Bob’s Big Boy, Roy Rogers, and Hot Shoppes. In term of revenue, contract services was the biggest division which generated 46% of 1987 sales, and lodging division came after with 41% sales, restaurants division at last with 13% sales.
In April 1988, Dan Cohrs, the vice president of project finance at Marriott Corporation, was preparing his annual recommendations for the discount rates at each of the firm’s three divisions. Since the risk profile were different for each division, Cohrs projected three different discount rates, which were 10% for lodging division, 15% for restaurant division, and 16% for contract services division.
Company’s goal
As mentioned in Marriott’s 1987 annual report, the company intended to remain its premier growth. This means aggressively developing appropriate opportunities within its three lines of business. And in each of these areas, Marriott’s goal was to be the preferred employer, the preferred provider, and